McRoberts 
Russia 


THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

LOS  ANGELES 


GIFT 
of 
D.M.  Krassovsky 


D  .M-Krsssovsiy. 


RUSSIA 


SAMUEL  McROBERTS 

Executive  Manager 

The  National  City  Bank 
of  New  York 


AN  ADDRESS 

BEFORE 

Seventh  Annual  Banquet 
Boston  Chapter,  American  Institute  of  Banking 

Boston,  Mass. 
January  16,  1917 


RUSSIA. 


The  most  important  fact  in  our  economic  relation 
to  the  war  is  the  sudden  acquisition  by  this  country 
of  a  very  large  amount  of  new  capital.  In  a  period  of 
time  that  is  infinitesimal  in  the  history  of  a  country,  the 
United  States  has  apparently  discharged  its  debts,  and 
become  a  lender  among  nations.  However  deeply 
some  of  us  may  regret  that  these  war  conditions  have 
only  tended  to  emphasize  the  material  side  of  the 
American  people  instead  of  solidifying  the  national 
thought  and  feeling  behind  some  great  world  prin- 
ciples ;  however  loath  we  may  be  to  take  material  gain 
from  human  suffering;  the  fact  remains  that  we  have 
today  an  abnormal  proportion  of  the  world's  gold,  and 
that  its  acquisition  has  not  yet  ceased.  This  has 
happened  with  such  amazing  suddenness  that  its  sig- 
nificance is  not  fully  apparent.  What  it  means  to  us 
and  other  nations  in  ultimate  results  has  not  yet  crystal- 
lized into  any  authoritative  opinion.  Our  economists 
and  financiers  have  begun  to  consider  and  venture 
judgments.  Some  have  already  said  that  it  was  a 
passing  incident  of  the  war,  and  more  likely  to  injure 
us  than  to  produce  permanent  benefits.  Some  have 
professed  to  see  in  it  a  situation  connived  at  by  the 
Allied  Powers,  who,  having  practically  prevented  the 
export  of  gold  from  the  United  States,  have  put  us 
in  the  position  of  the  goose  nailed  to  a  board  and  stuffed 
with  yellow  grain,  so  that  it  would  produce  pate  de  foic 
gras  in  the  shape  of  fat  foreign  loans  for  the  Allies, 
and  have  prophesied  that  our  disintegration  would 
promptly  follow  the  full  crop.  Others  do  not  hesitate 
to  state  that  a  new  center  of  finance  has  been  created ; 


830301 


that  the  dollar  has  permanently  succeeded  the  pound 
sterling  in  the  world's  markets,  and  that  New  York 
from  now  on  will  be  the  pivotal  point  in  international 
exchange. 

A  first  analysis  discloses  the  very  great  and 
unusual  importance  of  this  situation  to  the  future 
of  this  country,  for  it  threatens  with  a  danger  that 
must  be  met  and  warded  off,  and  at  the  same  time 
offers  a  very  wonderful  opportunity  that  should  stimu- 
late the  initiative  of  every  live  man  in  the  land.  The 
remarkable  growth  of  the  cost  of  production  in  all 
fields  of  manufacturing,  the  unparalleled  level  of 
wages,  and  the  resulting  high  cost  of  living,  clearly 
intimates  how  pregnant  it  is  of  disaster,  and  how 
easily  present  conditions  may  be  reversed  when  the 
war  is  over  and  our  new  wealth  rapidly  drawn  away, 
leaving  only  the  dregs  of  discontent  and  a  multitude 
of  commercial  and  political  difficulties.  During  the 
last  two  years  we  have  rapidly  expanded  our  manu- 
facturing capacity,  and  under  abnormal  conditions  are 
producing  an  abnormal  volume  at  abnormal  cost.  We 
will  plainly  face  the  greatest  difficulties  when  the 
foundation,  the  unusual  demands  of  the  warring 
countries,  is  withdrawn,  and  we  are  forced  to  reduce 
costs  and  market  our  production  under  renewed  com- 
petition. If  we  are  to  avoid  industrial  stagnation,  idle 
plants  and  idle  workmen,  we  must  prepare  for  the 
shock  that  can  be  clearly  foreseen  as  awaiting  our 
export  business  when  this  forced  buying  comes  to  an 
end.  Our  industry  in  many  lines  is  already  expanded 
to  the  limit,  if  not  beyond  the  limit,  which  our  available 
labor  can  operate.  The  war  prevents  the  augmentation 
of  our  labor  resources  by  immigration,  and  being  thus 
limited  we  cannot  utilize  capital  in  the  immediate 
expansion  of  legitimate  manufacturing  enterprises.  To 


continue  to  receive  gold  will  only  create  an  extension 
of  bank  credits  which  cannot  be  used  in  our  domestic 
situation.  This  can  only  lead  to  an  unsound  financial 
position.  This  is  recognized  by  the  Scandinavian 
countries  and  is  the  reason  for  their  active  discourage- 
ment of  the  further  importation  of  gold.  On  the  other 
hand,  if  we  are  ambitious  simply  to  hold  the  new 
capital  derived  from  the  war,  we  can  expect  to  do  so 
only  by  putting  it  to  productive  use.  The  parable  of 
the  talents  is  good  financial  doctrine  today,  and  we 
cannot  devise  a  napkin  with  which  to  hold  the  gold. 
We  can  expect  to  keep  it  only  by  immediately  putting 
it  to  active  use,  and  incorporating  it  into  the  com- 
mercial capital  of  the  world's  business.  The  conclusion 
seems  inevitable  that  the  outlet  for  our  surplus  capital 
must  be  in  foreign  investments,  and  that  the  protection 
of  our  domestic  economic  situation  demands  this.  In- 
vestment of  capital  in  foreign  government  securities  in 
sufficient  volume  will  protect  our  gold  supply  against 
the  immediate  effects  of  the  inevitable  reaction  after  the 
war,  and  at  the  same  time  will  prevent  an  inflation  of 
bank  credits  at  home. 

So  much  for  the  dangers  of  the  situation.  But  what 
are  we  going  to  do  with  the  opportunities  that  it  pre- 
sents? The  optimistic  conclusion  that  New  York  is 
to  be  henceforth  the  financial  center  of  the  world ;  that 
the  overseas  trade  will  necessarily  be  cleared  through 
the  United  States;  that  the  key  to  the  world's  com- 
merce is  now  in  our  hands,  and  that  in  the  natural  order 
of  things  we  have  become  a  great  trading  nation,  with 
our  economic  position  assured  for  a  decade,  is  unten- 
able. For  holding  such  a  position  we  have  only  one 
qualification:  money.  Our  geographical  location,  out- 
side of  the  natural  lanes  of  trade,  is  against  us.  We 
have  no  shipping  facilities,  and  on  the  contrary  are 


apparently  unwilling  to  recognize  the  ordinary  eco- 
nomic principles  necessary  to  establish  them.  We  have 
not  a  sufficient  number  of  international  banks  or  other 
machinery  necessary  for  financing  foreign  trade.  We 
prohibit  the  establishment  of  foreign  banks  here,  which 
is  just  as  essential  to  the  development  of  our  relations 
in  foreign  trade  as  the  establishment  of  our  own  banks 
abroad.  We  have  few  men  with  any  knowledge  and 
experience  in  international  commerce.  Our  laws  have 
been  founded  with  an  eye  solely  to  domestic  conditions, 
and  with  no  consideration  for  our  opportunities  or 
necessities  abroad.  As  a  nation,  we  have  a  provincial 
point  of  view  on  all  these  questions,  and  until  we  can 
develop  a  settled  public  opinion  regarding  foreign  in- 
vestments and  foreign  trade,  we  will  have  a  weak  and 
unstable  government  to  look  to  for  support.  When 
you  contrast  this  with  England's  unparalleled  equip- 
ment in  each  of  these  details,  the  conclusion  is  inevitable 
that  no  Aladdin's  lamp  of  gold  is  sufficient  to  produce  a 
great  foreign  trade,  and  that  by  no  one  war  can  Eng- 
land be  deprived  of  the  dominance  that  has  been  the 
slow  growth  of  centuries  and  the  product  of  the  energy 
and  devotion  of  so  many  English  lives.  Whatever  our 
ambitious  desires  may  be,  it  must  be  a  source  of  deep 
satisfaction  to  you  that  it  is  so,  and  that  England,  while 
paying  in  blood  and  treasure  to  preserve  her  ideals  of 
government  and  civilization,  will  not  also  suffer  that 
loss.  That  we  are  in  no  position  to  dominate  the  situ- 
ation should  be  no  cause  for  discouragement.  On  the 
other  hand,  considering  our  inexperience  and  lack  of 
first-hand  knowledge,  our  opportunity  is  probably 
greater  in  that  through  our  surplus  capital  we  can  be 
useful  to  England  in  preserving  what  she  has  already 
established.  An  unofficial  financial  alliance  with  Eng- 
lish and  French  capital  would  give  greater  safety  and 


stability  to  our  progress,  and  Europe's  need  of  such 
support  for  a  number  of  years  following  the  war  will 
insure  us  immediate  results  that  otherwise  could  have 
only  been  obtained  by  long  years  of  patient  building. 
In  such  co-operation  lies  our  greatest  opportunity,  and 
it  should  not  be  endangered  by  faltering  in  the  last 
stages  of  the  conflict,  or  withdrawing  the  financial  sup- 
port that  has  been  up  to  this  time  so  splendidly 
extended. 

While  recognizing  the  value  of  co-operation  with 
European  finance,  we  cannot  overlook  those  fields  that 
are  still  unoccupied,  wherein  we  may  lay  the  foundation 
for  our  own  independent  trade  and  commerce.  Follow- 
ing the  maxim  of  experience,  that  "trade  follows  the 
loan",  we  should  in  protecting  our  financial  position  by 
foreign  loans  not  overlook  those  countries  where  future 
trade  can  be  obtained.  Probably  the  greatest  field  for 
our  future  operation  is  Mexico,  owing  to  the  character 
of  its  undeveloped  resources  and  its  close  juxtaposition. 
When  life  and  property  can  be  considered  permanently 
safe  in  that  country,  our  capital  and  energy  will  flow 
over  the  border,  to  the  mutual  benefit  of  both  countries. 
It  is  probably  our  greatest  field  and  should  be  peculiarly 
our  own.  The  re-establishment  of  its  Government  can 
be  confidently  expected  when  the  European  war  no 
longer  stays  the  hand  of  the  other  nations  who  have 
investments  there.  Canada  will  always  be  an  important 
factor  in  our  trade,  but  investments  in  Canada  will 
hardly  continue  beyond  the  equalization  of  the  interest 
rates  between  here  and  London.  The  most  important 
distant  fields  are  Russia  and  China,  and  you  have  asked 
me  to  speak  particularly  of  Russia. 

It  is  difficult  to  comprehend  the  physical  extent  of 
Russia  or  make  comparisons  that  clearly  convey  an 
idea  of  its  great  area.  It  has  one-sixth  of  the  land 


area  of  the  globe.  The  rail  journey  direct  from  War- 
saw to  Vladivostock  is  six  thousand  miles  long,  nearly 
twice  the  distance  from  New  York  to  San  Francisco. 
It  is  over  two  thousand  miles  from  the  Arctic  Sea  to 
Tiflis  or  Samarkand,  about  the  distance  from  Hudson's 
Bay  to  the  Gulf  of  Mexico.  It  has  all  variations  of 
climate,  from  arctic  to  semi-tropical,  such  as  you  would 
encounter  from  Labrador  to  Florida.  In  its  borders 
are  the  most  extensive  plains  in  the  world,  the  longest 
rivers,  and  some  of  the  highest  mountain  ranges.  It 
has  all  the  climatic  conditions  of  the  remainder  of  the 
North  Temperate  zone,  somewhat  intensified  by  its 
great  area  being  unbroken  by  seas.  Within  its  borders 
are  found  all  the  natural  resources  that  are  essential  to 
modern  civilization.  It  has  very  large  known  deposits 
of  iron,  coal,  oil,  copper  and  the  precious  metals,  and 
practically  all  of  the  metals  of  minor  importance.  It 
has  about  one-half  of  the  standing  timber  North  of 
the  Equator.  It  has  the  most  extensive  area  of  first- 
class  farm  land  found  anywhere  on  the  globe.  It  has 
about  175,000,000  inhabitants. 

The  present  status  of  the  development  of  these 
resources  is  indicated  by  the  production  of  the  last 
normal  year  before  the  war,  1913.  That  year  pro- 
duced about  forty  million  tons  of  coal ;  four  and  a  half 
million  tons  of  finished  iron  and  steel;  75  million 
pounds  of  copper,  valued  approximately  at  $10,000,- 
000;  1,300,000  ounces  of  gold,  worth  $26,000,000;  and 
275,000  ounces,  or  $25,000,000  worth,  of  platinum. 
Russia  is,  next  to  the  United  States,  the  largest  pro- 
ducer of  oil — the  production  for  1913  was  over  60  mil- 
lion barrels.  Her  forests  have  hardly  been  touched, 
and  comprise  today  the  great  timber  reserve  of  Europe, 
Russia  having  practically  all  of  the  surplus  timber  avail- 
able outside  of  Canada  and  the  United  States.  Still  she 

8 


exported  during  1913  some  $84,000,000  worth  of  tim- 
ber products.  In  agriculture,  in  1913,  Russia  planted  to 
cereals  alone  over  215,000,000  acres.  On  82,600,000 
acres  planted  to  wheat,  she  produced  over  a  billion 
bushels.  In  the  same  year  the  United  States  planted  49,- 
600,000  acres  and  produced  three-quarters  of  a  billion 
bushels.  The  yield  in  Russia  per  acre  for  winter  wheat 
was  practically  the  same  as  that  of  the  United  States. 
Her  production  in  all  other  cereals,  outside  of  corn,  is 
much  more  extensive  than  the  United  States,  and  her 
root  products  are  enormously  greater.  Russia  has  more 
sheep  and  goats  than  the  United  States,  about  as  many 
cattle,  about  one-fourth  as  many  hogs,  and  a  much 
greater  number  of  horses.  It  is  still  essentially  an  agri- 
cultural country.  Eighty-five  per  cent,  of  its  people 
live  on  the  land  and  obtain  their  livelihood  almost  solely 
by  agricultural  pursuits.  At  the  same  time  there  are 
established  in  the  Empire  over  200  cities,  ranging  from 
a  few  thousand  inhabitants  to  Petrograd  with  its  two 
million.  Russia  has  constructed  and  in  operation 
47,000  miles  of  railways,  practically  all  of  which  is  first- 
class  in  every  respect  and  operated  at  a  profit  compar- 
ing favorably  with  railroads  elsewhere  in  the  world. 
Russia  produces  about  two-thirds  of  the  cotton  which 
she  manufactures,  and  cotton  growing  can  be  easily 
extended  to  meet  all  of  her  requirements.  She  pro- 
duces a  great  surplus  of  flax,  which  is  largely  exported 
in  the  raw  state,  although  a  substantial  beginning  has 
been  made  in  textile  manufacturing,  not  only  on  cotton 
and  flax  fabrics,  but  also  wool.  The  coal  and  steel 
industry  was  developed  previous  to  the  war  to  a  point 
where  it  produced  the  bulk  of  its  own  requirements,  and 
its  indefinite  extension  does  not  depend  upon  the  solu- 
tion of  metallurgical  problems,  but  simply  upon  the 
application  of  organization  and  capital. 


The  largest  items  of  Russia's  export  trade  previous 
to  the  war  were:  Cereals  and  Agricultural  Products, 
Cattle,  Hides  and  Furs,  Timber,  and  Mineral  Products. 
This  export  trade  averaged,  for  the  three  years  previous 
to  the  war,  $794,000,000,  and  resulted  in  an  average 
credit  balance  of  $158,000,000. 

No  figures  are  obtainable  to  indicate  the  enormous 
extent  of  Russia's  domestic  trade.  The  banking  ma- 
chinery for  carrying  on  this  business  consists  of: 
The  Imperial  or  State  Bank,  the  Land  Banks  and  the 
Government  Savings  Banks,  all  operated  by  the  banking 
department  of  the  Government;  the  commercial  or 
joint-stock  banks,  which  are  private  institutions ;  munic- 
ipal banks,  and  mutual  credit  societies.  The  Imperial 
Bank  is  the  largest  bank  in  the  world.  Its  statement 
for  October  of  last  year  showed  total  assets  of 
10,000,000,000  roubles,  and  total  gold  resources  of 
3,600,000,000  roubles,  or  $1,800,000,000.  It  is  the  bank 
of  issue  for  the  entire  Empire,  and  while  it  has  power 
to  do  a  commercial  banking  business,  its  chief  activities 
are  with  other  banks,  for  which  it  receives  deposits, 
makes  loans  and  rediscounts  bills.  The  Land  Banks 
are  of  two  classes,  called  the  Land  Bank  of  the  Nobility 
and  the  Land  Bank  of  the  Peasants,  which  latter  were 
created  for  the  purpose  of  facilitating  the  distribution 
of  land  to  the  peasant  classes.  The  Government  oper- 
ates a  State  Savings  Bank  of  which  the  branches  num- 
ber over  ten  thousand,  scattered  throughout  the  Empire. 
They  are  the  depositories  of  the  savings  of  the  people. 
On  October  1,  1914,  their  total  deposits  amounted  to 
about  1,700,000,000  roubles.  These  savings  deposits 
have  rapidly  increased  during  the  war.  On  August  14, 
1916,  they  approximated  3,200,000,000  roubles.  This 
is  partially  attributed  to  the  abnormal  prosperity  inci- 
dental to  the  war,  but  is  more  directly  attributed  to  the 

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abolition  of  vodka,  it  being  a  matter  of  common  knowl- 
edge that  the  peasant,  instead  of  spending  his  money 
for  alcohol,  which  formerly  was  the  universal  custom, 
now  expends  it  not  only  for  better  living  facilities, 
clothing  and  food,  but  has  also  tremendously  augmented 
his  savings.  This  increase  in  Bank  Savings  in  less 
than  two  years,  at  the  par  value  of  the  rouble,  amounts 
to  $775,000,000,  and  at  the  present  exchange  value, 
about  $450,000,000. 

The  first  joint-stock  bank  was  established  in  Russia 
in  1864.  In  1913  the  number  had  increased  to  45,  with 
732  branches,  with  a  total  capital  and  surplus  of 
.741,000,000  roubles,  and  with  deposits  aggregating 
2,300,000,000  roubles.  These  banks,  in  addition  to 
exercising  the  usual  functions  of  commercial  banking, 
participate  in  the  industrial  activities  of  the  country, 
not  only  financing,  but  in  some  cases  owning  outright, 
various  industrial  and  commercial  enterprises.  As  a 
rule,  banking  has  always  been  exceptionally  profitable 
in  Russia.  Bank  failures  which  involve  a  loss  by  de- 
positors are  practically  unknown.  These  joint-stock 
banks  are  not  organized  under  a  general  banking  law, 
but  each  has  a  special  charter  from  the  Imperial  Gov- 
ernment, and  they  are  all  under  the  supervision  of  the 
banking  department  of  the  Government.  The  largest, 
with  a  few  exceptions,  have  their  head  offices  in  Petro- 
grad ;  a  few  in  Moscow ;  and  the  greater  number,  known 
as  "provincial  banks",  have  headquarters  at  various 
points  in  Russian  territory  throughout  Europe  and 
Asia.  This  tremendous  banking  capital  seems  to  be 
fully  employed.  Rates  have  over  a  long  period  of  years 
ruled  high  in  Russia,  as  is  natural  in  a  developing 
country.  The  business  is  operated  on  principles  iden- 
tical with  banking  principles  throughout  the  world. 
The  commercial  laws  of  the  country  are  well  settled  and 

11 


fully  interpreted  by  the  courts,  and  there  is  apparently 
just  as  much  certainty  in  the  banking  operations  of 
Russia  as  in  those  of  any  other  country. 

A  clear  idea  of  the  status  of  Russia's  development 
can  best  be  gained  by  travel  in  that  country.  The 
most  casual  visit  has  the  effect  of  immediately  dis- 
pelling erroneous  impressions  gained  from  insufficient 
and  misleading  information  that  has  been  dissem- 
inated in  this  country.  Petrograd  is  in  every  essential 
a  European  city,  offering  the  same  facilities  for  com- 
fortable residence,  interests,  and  amusements  that  are 
afforded  by  any  leading  city  of  the  United  States. 
The  public  presents  about  the  same  aspect  as  to  dress, 
manners  and  general  deportment  as  you  would  en- 
counter in  Boston,  with  the  possible  exception  of  the 
greater  prevalence  of  distinctive  uniforms  for  the  men. 
A  Cossack  officer  without  his  uniform  cannot  be 
easily  distinguished  in  appearance  from  a  West  Point 
graduate.  This  is  true  only  to  a  slightly  varying  ex- 
tent throughout  the  different  cities  in  European 
Russia.  Even  Tiflis,  that  would  naturally  be  expected 
to  present  distinctive  Oriental  characteristics,  outside 
of  the  older  or  Turkish  part  of  the  town,  might  be 
mistaken  for  Rochester,  N.  Y. ;  Kharkoff,  for  a  pros- 
perous iron  and  steel  town  in  Pennsylvania ;  or  Rostov, 
with  her  grain  elevators  and  shipping,  for  one  of  the 
more  important  lake  cities.  The  first-class  trains  fur- 
nish the  same  speed  and  comfort  that  we  enjoy  in  this 
country,  and  from  the  car  windows  you  are  confronted 
with  the  familiar  scenes  of  abundant  crops  being  tilled 
and  harvested  with  machinery  which  is  much  the  same 
kind,  if  not  identical  with,  that  we  have  at  home.  The 
oxen  and  the  wooden  plow  of  Abraham,  with  which  we 
are  told  the  "moujik"  tills  the  soil,  are  chiefly  noticeable 
by  their  absence. 

12 


However,  Russian  credit  cannot  be  judged  solely 
from  the  standpoint  of  Russian  resource,  developed  or 
undeveloped.  As  the  personal  equation  is  the  great 
underlying  factor  in  commercial  credits,  we  cannot 
appraise  the  obligations  of  a  nation  without  giving 
due  consideration  to  the  character,  temper,  energy  and 
initiative  of  its  people,  and  the  stability  of  their  social 
and  political  institutions.  The  Russians  are  a  far- 
north  people,  with  the  physical  vigor  and  energy  char- 
acteristic of  Northern  races.  They  walk  fast,  talk  fast, 
and  regardless  of  whether  they  are  ignorant  or  learned, 
are  quick  to  perceive.  When  trained,  they  have  al- 
ways proven  themselves  excellent  workmen.  They  are 
a  democratic  people  with  a  "get-together"  spirit  some- 
what similar  to  the  Germans.  They  are  fond  of  con- 
gregating in  crowds  for  games,  music  or  conver- 
sation. This  democratic  spirit  of  the  Russian  peo- 
ple does  not  seem  to  be  understood,  especially  in  re- 
spect to  the  higher  classes.  While  there  are  numerous 
titles  of  nobility  existing  in  Russia,  there  is,  in  fact,  no 
organized  aristocracy  based  upon  heredity,  such  as  ex- 
ists in  England.  No  special  privileges  are  entailed  to 
the  eldest  son.  All  inherit  equally,  both  the  wealth 
and  the  title  of  the  family.  These  titles  do  not  indi- 
cate either  wealth  or  distinction,  and  the  only  title  hav- 
ing weight  is  that  obtained  in  military  or  civil  service 
by  brilliant  achievements  or  long  devotion.  Contrary 
to  opinion  abroad,  the  Russian  individually  is  not 
gloomy,  but  light-hearted  and  good-natured.  Owing 
to  the  fact  that  Russian  art  is  almost  always  expressed 
in  tragedy  and  sorrow,  it  has  naturally  been  deducted 
that  the  Russians  were  a  peculiarly  tragic  and  gloomy 
people.  The  Russian  business  man  more  nearly  ap- 
proximates the  American  business  man  than  any  other 
in  Europe,  and  would  prove  more  congenial. 

13 


The  slow  development  of  Russia  cannot  be  at- 
tributed to  the  slowness  of  the  Russian  people.  A 
consideration  of  geographical  conditions  leads  to  the 
conclusion  that  the  Russian  Empire,  with  the  possible 
exception  of  Poland,  is  logically  one  empire.  When 
you  consider  Russian  history,  apart  from  its  tragic  and 
interesting  character,  you  are  most  impressed  with  its 
consistent  and  logical  development.  This  territory  is 
occupied  by  a  people  originally  consisting  of  more  than 
forty  different  races.  It  would  seem  that  in  the  develop- 
ment of  the  nations,  to  produce  the  greatest  unit  was 
necessarily  the  hardest  task  and  has  required  the 
longest  time.  But  out  of  it  is  emerging  an  original 
civilization,  for  Russian  customs,  art  and  letters 
possess  a  virility  and  individuality  almost  untouched 
by  the  rest  of  the  world.  Another  important  factor  is 
that  the  Russian  people  are  the  most  prolific  of  all  the 
races,  and  when  it  is  contemplated  that  this  nation, 
slowly  welded  together,  will  amount  to  some  250,000,- 
000  souls  before  the  middle  of  this  century,  it  can  be 
realized  that  the  Slavic  race  is  just  beginning  to  come 
into  its  own  and  that  the  Russian  civilization  is  des- 
tined to  be  one  of  the  dominant  civilizations  of  the 
world. 

It  has  been  the  fashion  in  America  to  condemn  the 
form  of  the  Russian  Government,  and  to  confidently 
predict  its  immediate  overthrow.  Again,  the  study  of 
the  development  of  the  Russian  nation  and  the  ethno- 
logical conditions  incident  to  that  development  dis- 
closes the  imperative  necessity  of  some  unusual  form 
of  centralized,  and  even  despotic,  power.  Russia  has 
always  been  in  danger,  and  at  times  has  suffered  ter- 
rible calamities  from  invasion.  The  Russians  recog- 
nized the  necessity  of  the  centralization  of  power  when 
they  surrendered  to  Ruric  the  right  to  rule  them,  and 

14 


however  critical  we  may  be  of  a  despotic  form  of 
Government,  we  cannot  avoid  recognizing  its  useful- 
ness in  the  development  of  the  Russian  nation.  In 
criticising  and  forecasting  the  political  future  of 
Russia,  great  emphasis  has  been  laid  upon  the  spirit 
of  unrest  and  the  agitations  of  the  Nihilist,  the  Demo- 
crat, or  the  Conservative-Progressive.  It  has  been 
overlooked  that  the  great  mass  of  the  Russian  people 
remain  loyal  to  the  hereditary  ruler,  and  the  discontent 
is  not  with  the  crowned  head,  but  with  what  they 
assume  to  be  the  miscarriage  of  his  intentions.  Fur- 
thermore, the  Russian  people  are  a  peculiarly  religious 
people,  with  an  unparalleled  unity  in  religious  belief 
and  practice.  These  elements  in  the  situation  render 
it  impossible  for  any  revolution  in  Russia  to  make  prog- 
ress unless  its  aims  are  conservative  and  it  contains  a 
religious  element.  The  difficulties  of  Russian  Govern- 
ment are  very  simple  and  easily  understood,  consisting 
of  too  great  a  concentration,  too  much  paternalism,  and 
an  irresponsible  bureaucracy.  This  does  not  create  an 
irreconcilable  situation.  As  the  Russian  people  show 
more  capacity,  the  Government  will  have  to  respond  by 
permitting  an  increase  of  local  government  and  a  grad- 
ual restriction  and  finally  a  complete  responsibility  for 
the  bureaucratic  officers  of  the  Government.  This  is 
exactly  the  process  that  is  now  going  on.  The  organi- 
zation of  the  zemstvo  unions,  which  are  local  self-gov- 
erning county  organizations,  is  becoming  more  and 
more  important.  While  it  is  denied  that  the  Duma, 
or  popular  branch  of  the  Russian  legislature,  has  much 
specific  power,  at  the  same  time  the  bureaucracy  ap- 
parently has  a  wholesome  dread  of  the  criticism  of  that 
body,  or  of  coming  into  conflict  with  public  opinion.  It 
is  well  understood  in  Russia  that  a  constitutional  gov- 
ernment must  be  evolved  out  of  the  situation,  and  can- 

15 


not  be  obtained  by  revolution,  and  no  apprehension  may 
be  felt  for  the  stability  of  the  personal  or  property 
rights  of  the  foreign  investor. 

To  gain  a  full  conception  of  the  opportunities 
afforded  for  American  capital  in  Russia,  it  is  neces- 
sary to  compare  Russia,  not  with  the  United  States  at 
this  time  but  with  the  United  States  at  the  close  of  the 
Civil  War.  At  that  time  the  people  of  the  United 
States  resided  in  the  territory  East  of  the  Mississippi 
River,  having  the  territory  between  the  Mississippi  and 
the  Pacific  slope  as  a  great  reserve  domain,  yet  to  be 
developed.  On  a  vastly  larger  scale,  the  same  situation 
is  reproduced  in  Russia  to-day.  Its  present  population 
and  its  developed  civilization  are  located  in  European 
Russia,  with  its  Asiatic  possessions,  five-sixths  of  its 
territory,  still  undeveloped.  Just  as  the  United  States 
then  turned  to  the  development  of  its  public  lands  and 
mineral  deposits  in  the  West,  and  the  organization  of 
its  industries  in  the  East,  Russia,  in  order  to  produce 
the  greatly  increased  wealth  necessary  to  meet  her  finan- 
cial obligations  and  hold  the  more  important  position 
in  the  world's  affairs  which  the  war  has  thrust  upon 
her,  is  now  taking  stock  of  her  great  timber  resources ; 
her  fertile  unoccupied  lands;  the  hidden  resources  of 
her  mountain  ranges ;  and  turning  her  attention  to  the 
organization  of  industries  in  her  more  thickly  populated 
sections. 

Europe  must  go  to  Russia  for  timber  when  the 
inevitable  rebuilding  program  begins,  and  will  afford 
Russia  a  wonderful  opportunity  to  realize  upon  the 
latent  wealth  of  her  forests.  This  will  require  an  enor- 
mous outlay  of  capital  for  the  building  of  railroads, 
port  facilities,  steamships,  sawmills,  pulp  mills,  and  all 
those  things  incidental  to  the  manufacture  and  trans- 
portation of  timber  products.  The  development  of  her 

16 


railroads  since  the  beginning  of  the  war  has  been  at 
a  standstill,  and  even  now  they  are  inadequate  in  her 
most  developed  territory.  The  opening  up  of  Turk- 
estan and  Siberia  will  require  an  enormous  program  of 
railroad  building.  If  we  include  the  undeveloped  terri- 
tory of  Russia,  an  idea  of  what  railway  mileage  may  be 
required  can  be  obtained  by  comparison  with  that  of  the 
United  States.  The  total  mileage  in  Russia  is  47,000 
miles,  against  260,000  miles  in  this  country.  This 
means  for  Russia,  on  the  basis  of  square  miles,  only  5%, 
and  on  the  basis  of  population,  only  10%,  of  the  railway 
mileage  of  the  United  States.  To  expand  the  railway 
net  of  Russia  will  mean  an  immediate  and  enormous  ex- 
pansion of  the  steel  industry,  as  every  mile  of  road  re- 
quires approximately  200  tons  of  steel,  and  with  the 
development  of  the  long  haul  and  heavy  traffic  Russia 
will  be  forced  to  the  large  unit  of  transportation  adopted 
in  this  country,  which  again  will  require  relaying  exist- 
ing roads  with  heavier  rails  and  strengthening  the 
right-of-way  structures.  The  country  is  well  supplied 
with  coal,  and  has  iron  ore  in  very  great  abundance. 
The  production  of  both  at  the  present  time  is  by  unre- 
lated and  comparatively  small  units.  To  organize  the 
industry  along  comprehensive  lines  and  link  together 
the  raw  materials  by  special  transportation  facilities 
affords  an  opportunity  to  American  capital  to  re-enact 
in  Russia  the  last  twenty  years  of  its  history  in  the 
United  States. 

Previous  to  the  war  the  great  bulk  of  manufactured 
products  was  furnished  to  Russia  by  Germany.  The 
Russian  is  proverbially  good-natured,  and  it  cannot  be 
expected  that  the  hatred  of  Germany  and  Germans  will 
long  survive  the  war,  but  the  demonstration  of  the  eco- 
nomic folly  of  depending  upon  a  foreign  nation  for  its 
manufactured  goods,  forced  home  by  the  interruption 

17 


of  commercial  relations,  will  never  be  forgotten.  It  is 
inevitable  that  Russia,  pursuing  the  same  policy  of  high 
tariffs  and  foreign  financing  pursued  by  this  country, 
will  establish  and  build  up  her  own  essential  manufac- 
turing industries.  The  extension  of  commerce,  the  de- 
velopment of  her  facilities  for  the  storage  and  exporta- 
tion of  grain,  the  building  of  hydro-electric  works 
municipal  and  inter-urban  transportation  lines  and  har- 
bor works,  the  establishment  of  refrigeration  and  the 
organization  of  the  meat  produce  industry,  and  the  mis- 
cellaneous manufacture  of  innumerable  materials,  all 
incidental  to  a  rising  civilization,  will  make  Russia  a 
greedy  consumer  of  foreign  capital.  It  is  the  place 
where  capital,  being  the  most  useful,  is  going  to  enjoy 
the  highest  rate  of  return.  If  the  United  States  is  to 
participate  in  the  industrial  rise  in  Russia  which  will 
inevitably  follow  the  war,  it  is  first  necessary  to  suffi- 
ciently understand  Russia's  resources  and  industrial 
status  to  form  a  clear  idea  of  the  solidarity  and  de- 
pendability of  Russian  credit;  then  to  establish  in  our 
own  financial  markets  the  premier  Russian  security, — 
the  Russian  Government  bond.  This  gives  us  the  nec- 
essary entree  into  Russian  affairs  and  it  would  plainly 
be  useless  to  subsequently  consider  industrial  financ- 
ing in  Russia  unless  our  investors  understood  and  ap- 
preciated the  intrinsic  value  of  the  Government  securi- 
ties. This  should  be  followed  by  a  wide  dissemination 
of  knowledge  regarding  Russia.  Travel  to  Russia  on 
the  part  of  those  whose  opinion  is  valuable  should  be 
encouraged,  and  the  first  ventures  in  industrial  finance 
should  be  made  upon  the  most  conservative  lines  and 
in  respect  to  the  basic  industries.  If  this  course  is  fol- 
lowed, it  will  not  only  give  a  profitable  outlet  to  Ameri- 
can capital,  but  will  lead  to  the  establishment  of  an 
extensive  commercial  trade  between  the  two  countries. 


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